2018 (3) TMI 1033 - AT - Income Tax

Disallowance of interest - Held that - As decided in assessee s own case 2014 (4) TMI 1214 - ITAT KOLKATA if these are funds available both interest free and overdraft and / or loans taken, then a presumption would arise that investments would be out of the interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal. We are therefore, of the opinion that Ld. CIT(Appeals) was justified in allowing the interest paid on loans to be deducted from the interest earned - Decided against revenue

Summary

Issues:
Appeal against deletion of interest disallowance.

Analysis:
1. The appeal was filed by the revenue against the order of the Ld. CIT(A) deleting the addition of ?53,46,249/- made by the A.O. as disallowance of interest.
2. The assessee, an individual, claimed a deduction of ?53,46,249/- for interest paid on borrowed funds in the return of income filed for the relevant year.
3. The A.O. questioned the nexus between the interest-bearing borrowed funds and the business activities of the assessee, leading to the disallowance of the claimed deduction.
4. The assessee contended that the interest paid was associated with loans taken against fixed deposits to prevent financial irregularities and was linked to the interest income earned.
5. The Ld. CIT(A) accepted the assessee's submissions, citing a previous Tribunal order in the assessee's favor for a similar issue in a previous assessment year.
6. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing the establishment of a nexus between the loans taken and the fixed deposits made, supported by interest-free funds available to the assessee.
7. Given the similarity of facts and issues with the previous year, the Tribunal dismissed the revenue's appeal and upheld the deletion of the interest disallowance by the A.O.

This detailed analysis highlights the progression of the case, including the arguments presented by both parties, the reasoning behind the decisions made at each level, and the legal principles applied to determine the outcome in favor of the assessee.